Nothing Danfoss sold was American. The violation was where the money went.
The account
Between November 2013 and August 2017, Danfoss FZCO, the Danish group’s wholly owned subsidiary in the UAE, sold cooling and heating equipment to customers in Sudan, Syria and Iran. Its employees told those customers to pay into at least three UAE bank accounts, one of them at the UAE branch of a US financial institution.
Customers did not pay from their own accounts. They used third-party agents, such as money exchangers in non-sanctioned jurisdictions, to pay Danfoss FZCO, and Danfoss FZCO used the same route for five transfers out of that account to parties in Syria and Iran. OFAC says the third-party payers “disguised the originator or beneficiary,” so the payments were not stopped by the bank’s screening filters. The total value of the transfers was about $17 million.
OFAC found no evidence Danfoss used third-party payers on purpose to evade sanctions. It did find that the UAE subsidiary knew, from at least 2011, that using a US bank for sanctioned jurisdictions could be prohibited. The US bank rejected an Iran-related payment in 2011, and in 2016 Danfoss’s own compliance division told the subsidiary that invoicing an Iranian customer in dollars was impermissible. Collections into the account continued until August 2017.
The root cause
Danfoss FZCO relied on guidance from its parent, and the parent had no procedure for monitoring what the subsidiary was doing. Its regional finance director had no substantive training on US sanctions and did not consult the compliance programme manager. Danfoss could learn of a problem only if the subsidiary raised it. The bank identified the violations in May 2017 and told Danfoss; Danfoss disclosed to OFAC in October 2017, but OFAC already held the information and did not treat that as voluntary self-disclosure.
The penalty
Non-egregious and not self-disclosed. OFAC credited Danfoss’s exit from Iran, Syria and Sudan, a new procedure to identify the true originator of payments into its US-linked accounts, a subsidiary-specific sanctions manual and training, and full cooperation including a tolling agreement.
What the record shows
- Non-US goods, non-US parties, US exposure. OFAC states the general point itself: the sale of non-US goods by a non-US person to a sanctioned country can still violate the regulations when the payment is processed through a US financial institution.
- Third-party payers defeat name screening. The bank saw a money exchanger in a permitted jurisdiction, not the Iranian customer. See third-country bank accounts and the UAE page.
- A subsidiary the parent cannot see is the same gap as an acquisition. See acquisition integration gaps.